Hello - Does anyone has info as to how CodeFarm's Galapagos Structurer optimizes a CDO reference portfolio? I hear that it optimizes the port based on the desired tranche rating....

It's kind of silly to answer my own question, but the CodePharm's Galapagos does optimization of synthetic CDO tranches to "optimize" CDO tranche ratings and spreads, by running huge iteration between portfolio CDS spreads, market correlation, and tranche rating. Apparently, the system runs the rating agencies' model to assess the tranche rating, while maximizing the spreads allocated to the tranche. i.e., not just optimizing the reference portfolio by picking widest names with minimum WARF but optimizing the reference portfolio for a specific tranche at the specific position in the capital structure.

This is an appauling tool. It doest keep upto date with the latest rating agency models and takess too long to run. Why do you ask

Full disclosure: I work for Codefarm ...Galapagos CDO Structurer currently supports S&P CDO Evaluator 2.4.3, 3.1 and 3.2 and Moody's CDORom 2.1, 2.2 and 2.3. Depending on the sophistication of the arranger's existing techniques I'd expect Galapagos to produce equivalent or better tranche spreads for a target rating for a constrained CDO in from 5mins to a couple of hours.Kasparov ... if you've had less than positive results we'd be keen to get your feedback.